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Wednesday, December 22, 2010

Social Media and Insurance

An area of importance that organizations seldom consider when creating a social media policy is insurance coverage. In the minds of most people, insurance policies are maintained for the purpose of protecting physical assets. For example, organizations will insure to protect against property losses incurred due to events such as fires, floods and earthquakes. Notwithstanding the common notion that insurance policies largely protect physical assets, many organizations will also insure to protect against improper acts and omissions through the purchase of policies such as director and officer (D & O) policies. Regardless of the types of policies in place, few organizations consider coverage to protect against outcomes related to social media usage. However, as social media-related lawsuits continue to rise, organizations should develop a formal written social media policy that requires an organization to consider the role that insurance should play in mitigating social media-related risks.

At the outset, it is noted that social media-related lawsuits are rare. These lawsuits, however, do appear to be on the rise. As such, organizations may find it prudent to consider insurance coverage related to social media activities.

For example, consider an organization that monitors employee Internet activity such as social media posts. If that organization determines that based upon an employee’s activity (e.g., derogatory comments targeted at the organization) a termination of employment is deemed appropriate, the organization may be subjected to an invasion of privacy lawsuit for viewing the information. It could also be subjected to an unlawful termination lawsuit based upon a violation of one of the many potentially applicable laws such as the National Labor Relations Act, the Fourth Amendment, or any other similar law that provides employees with protection against action by employers. While lawsuits brought in such instances may not have any merit, the organization must nonetheless spend human and financial resources to deal with the lawsuit. An insurance policy that includes such events may be helpful in offsetting some of the legal expense incurred by the organization.

Legal claims need not only involve employees. Claims may also be brought by third parties. An example is a defamation lawsuit brought forward by a third party based upon derogatory comments made by an employee on a social media platform. Such a lawsuit may assert that the employee was serving in an official capacity on behalf of the organization when the comments were made and as such, the organization is responsible for the damaging comments. Another example may include claims related to the violation of intellectual property rights related to the unauthorized posting of trademarked or copyrighted material on a social media site.

In order to adequately protect against unforeseen social media incidents it is necessary that every organization conduct a risk assessment in order to determine the potential risks related to the organization’s use of social media. It is noted that social media risk potentially exists within every organization regardless of the existence of a formal social media strategy. Risks will vary. Organizations with comprehensive strategies will generally have greater exposure than organizations that limit use of social media. Regardless, every employee that accesses a social media platform can create exposure for the organization. A well-developed formal written social media policy will require the completion of a risk assessment that will assist the organization in determining the types of risks that may arise from social media usage. This process will provide the necessary information regarding the need for social media-related insurance coverage.

Before engaging in the purchase of social media-specific insurance coverage, organizations should analyze existing policies in order to determine the extent to which existing policies cover social media-related risks noted in the social media risk assessment. Such an analysis requires careful scrutiny of each policy’s language to determine if the policy terms, conditions and exclusions may apply to social media-related activities. Since social media is a recent technological tool it is likely that policy terms will not specifically mention “social media.” Policies, however, may refer to the Internet or digital information or make use of other terms that would broadly include social media usage. Organizations should consult with their insurance agent or broker for assistance in determining coverage. Such consultation should include providing the agent or broker with a copy of the social media risk assessment in order to ensure that the organization’s risks are understood by the agent or broker. Lack of understanding by the agent or broker may result in insurance coverage that does not address all the significant risks.

Organizations that take the time to scrutinize their insurance policies will be in the best position to maximize their insurance dollars and ensure appropriate coverage is in place. The devil is in the details. In the case of insurance policies, the devil is in the definition section of the policies. How coverage may apply will depend on the language used. Organizations should keep in mind that such language is negotiable. Organizations should seek to incorporate language that is inclusive of social media activities, if possible during the term of the policy, but certainly at renewal.

According to the Social Media Task Force at Reed Smith LLP in the February 2010 issue of Practical Law: The Journal (PracticalLaw.com), “since claims can raise a variety of issues and take different guises – from common law fraud and misrepresentation claims to invasion of privacy and cyber extortion – looking at an inventory of existing policies with a ‘social media’ lens can assist in seeing and seeking potential coverage that may come into play.”

A formal written social media policy supplemented with a social media risk assessment, provides the tools to ensure that an insurance policy analysis is conducted to maximize return on investment as well as identify gaps that require protection through additional insurance coverage.